Last week, a German regional court in Braunschweig ordered that shareholder litigation against Volkswagen AG proceed to a German court of appeals. The 170 separate shareholder suits allege that Volkswagen defrauded investors when it concealed that the company falsified emissions data in 11 million of its diesel vehicles. Together, the suits bring claims of nearly €4 billion.
Although German law does not provide for traditional American-style class action litigation, the Capital Markets Model Case Act allows a German trial court to refer multiple investor suits with common questions of fact or law to a court of appeals. The appellate court then selects a bellwether case to try, the outcome of which will be binding on the remaining cases.
In the Volkswagen cases, the plaintiff private and institutional investors allege that the company evaded emissions standards by rigging the software in millions of its diesel cars to allow those vehicles to emit more pollution after initial testing by government regulators was complete, when the vehicles were sold to consumers. The investors claim that Volkswagen decided to manipulate the emissions readings as early as 2005, and was put on notice of the fraud by both its suppliers and technicians in 2007. Additionally, they allege that Volkswagen was aware of potential U.S. regulatory exposure as early as 2008, and further, that the company should have disclosed the issue after the EPA began investigating it in 2014.
Ultimately, the plaintiffs allege that Volkswagen had a duty to disclose both its fraud and the risk of ultimate government action against the automaker. Without such disclosures, the investors were deprived of the opportunity to decide whether and when to sell their Volkswagen stock. They allege that they were damaged in September 2015, when the company disclosed that it had rigged the emissions software.
Progress in the German suit could further encourage the plaintiffs of the shareholder class action pending against Volkswagen in California, where the company’s motion to dismiss is also pending. Volkswagen has separately settled with the U.S. government, agreeing to pay $15 billion, repurchase or repair vehicles, repay car owners, and pay to promote zero-emission vehicles.
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